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Year Ending Positively For Boeing

Boeing Commercial Airplanes is showing a strong order finish for 2011, bringing a future revenue flourish to more fundamental advances it has made in production during the past few weeks that should ease the way its factories meet a busy schedule in 2012.

BCA's current order book, as of Dec. 14, grew by 251 in just a week to reach a net 778 for the year. Topping the list was the key endorsement by Southwest Airlines for Boeing's newest project, the 737 reengining program called MAX. Besides adding 58 737 Next Generations to what is already the industry's biggest 737 fleet, Southwest will be the MAX launch customer with a combined firm order for 150 in the 737-7 and 737-8 configurations, plus 150 options. Being at the head of the 737 ordering pack is a familiar position for the Dallas-based carrier, which also launched the 737-300, -500 and NG series.

First deliveries are set for 2017, two years after Airbus says it will be ready with its reengining program, the A320NEO.

Although the Southwest order has a list price value of $19 billion, Boeing and Southwest officials acknowledge the real price was deeply discounted. An indication of how much comes from Southwest Chief Operating Officer Mike Van de Ven, who says the total 350 airplanes Southwest has on order with Boeing, counting previous commitments, will require it to make an average annual capital expenditure of $1.2 billion from 2012-22, or $12 billion for the entire period.

Southwest's decision brought out the optimism at Boeing and on Wall Street. Noting that the size of the order exceeds the 200 that Airbus recently received from AirAsia for NEOs, BCA President and Chief Executive Jim Albaugh predicted that his company could have 1,400-1,500 commitments for MAX by the end of next year. It already has 948 orders and commitments in hand. Where Airbus's remarkable success with NEO dwarfed Boeing's single-aisle report at this year's Paris air show in June, Albaugh says the playing field is starting to level. By next year, MAX will be splitting the market with NEO, he predicts.

Citibank analyst Jason Gursky is among the Wall Street crowd who agree. “We expect 2012 to be the Year of Boeing, marked by at least 1,200 orders,” he declares.

Until the MAX breakthrough, the 777 was Boeing's order star and it continues to shine, resting now at a record 200 net for the year. The big twin-aisle jet so dominates its market segment that it essentially has no competition, at least until Airbus is able to produce the A350-1000, but that program is suffering delays.

Much of 2011 has been a trial of the patience of Boeing's leaders. They had to wait until September before the 787's first delivery was made to All Nippon Airways (ANA), and it came more than three years late. At the same time, their launch customer for the 747-8 Freighter, Cargolux, canceled a delivery ceremony at the last minute over contract details, which were later ironed out. All the while, Airbus was achieving record orders and deliveries, mostly on the strength of the NEO.

But 2011 has not been a constant struggle for BCA. Despite its delays, the initial 787s in service are winning plaudits. ANA Chief Executive Shinichiro Ito has been traveling the world extolling its “very smooth” service entry. Last week, the FAA completed type certification for the 747-8 family with a signoff for the passenger version—the Intercontinental. The freighter was certified in August and eight are now in operation, also without major squawks. Early next year, Lufthansa will welcome the first passengers aboard the Intercontinental.

Some of BCA's best end-of-year news has come not from its products but from the people who make them. Two weeks ago, Boeing won support from its largest and most militant union, the International Association of Machinists and Aerospace Workers (IAM), for a contract that will provide labor stability for nearly five years, to September 2016.

Besides bonuses, performance-based pay incentives and a continuation of nearly all the pension and health benefits workers hold dear, the agreement provides written assurances that machinists were eager to see—a commitment that Seattle's Puget Sound area will remain Boeing's base for airplane manufacturing. That pledge included assurances that the 737 MAX will be built in Renton, Boeing's longtime single-aisle production center. Machinists and Washington state political and economic leaders feared the company might take MAX's production out of the state.

Within days of the vote, the IAM fulfilled its own unstated but implicit contract pledge to Boeing. The union ended the protest of BCA's decision to locate its second 787 final assembly line in its non-union factory in South Carolina rather than BCA's unionized factory in Everett, north of Seattle. The nettlesome case was being contested before the National Labor Relations Board and would likely have tied up Boeing for years with court fights, until the IAM's withdrawal prompted the NLRB to drop it.

Meanwhile, a related good sign for the stability of Boeing's factories came from Spirit AeroSystems in Wichita, where the Society of Professional Engineering Employees in Aerospace (Speea) signed a 9.5-year contract after months of wrangling. Speea now has four similar long-term contracts in place; this is good news for Boeing, since Spirit is its largest outside airframe supplier, providing the entire fuselage for 737 NGs and the MAX and playing essential roles on all Boeing programs.

So Boeing will enter 2012 with important checkoffs on a long to-do list. But it is missing some. At this stage it may be a tight squeeze to make a revised delivery goal of 15-20 787s and 747s. As of last week, Boeing had delivered 10—eight 747s and two 787s—and it has already said it will not deliver any more 787s until January as it continues to struggle with changes that flowed from flight-test and production issues on the first 50 jets produced.

Also on next year's agenda are more negotiations with Speea, which has congratulated the IAM on the success of its new contract, indicating the direction the engineers want to go.

Building the 787 faster leads the list because the program uses a different supply-chain model. It is far more dependent on suppliers fulfilling key assembly, integration and test tasks prior to final assembly than are Boeing's other programs. The company needs to make a significant dent in the 787's backlog of 819 airplanes, which stretches to 2019.

The program's order rate is the best of any new commercial jet in history, but Boeing CEO James McNerney says the size of the 787's backlog discourages new customers. Still, there is some evidence that sales activity is stirring. Etihad Airways says it will take another 10 long-range 787-9s; it already has ordered 41 787s. Oman Air has ordered six 787-8s,

In every program, Boeing is increasing production rates. BCA reports adding more than 11,000 jobs since the start of the year.

Southwest, which has owned nothing but Boeing aircraft, looked at Airbus's NEO, but the airline's senior vice president for technical operations, Brian Hirshman, says the MAX gives more “mission flexibility” at some airports—such as Chicago Midway—with limited runway lengths.

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